Ghana’s Ministry of Finance has published a significant report reviewing the country’s VAT system in collaboration with the UK Institute for Fiscal Studies. The report reveals insights on VAT structure, business compliance issues, and the impact of recent policy changes on tax revenue, all while guiding the government’s Medium-Term Revenue Strategy.
The Ghana Ministry of Finance has released an important report reviewing the country’s value-added tax (VAT) system. This document, created with insights from the Institute for Fiscal Studies in the UK, examines how VAT is designed and administered in Ghana, focusing on revenue trends over time. It utilizes established VAT policy frameworks and data on the VAT’s effectiveness within Ghana’s economic context.
Key findings reveal that Ghana’s VAT system has a progressive structure; wealthier households contribute a higher percentage of their spending on VAT, largely due to exemptions on essential food items. However, richer households also gain significantly from these exemptions, prompting the government to reassess them to maximize revenue effectiveness as part of its Medium-Term Revenue Strategy (MTRS).
Many businesses below the VAT registration threshold voluntarily register for VAT, yet a considerable number of eligible businesses do not comply. Additionally, a noteworthy fraction of registered businesses either fail to file their tax returns or submit them with no sales reported. This situation highlights the need for significant enhancements in voluntary compliance and enforcement efforts in Ghana’s MTRS.
The 2023 limitation of the VAT Flat Rate Scheme (VFRS) to small taxpayers has reportedly increased tax revenues by alleviating administrative burdens for those who benefit the most from the scheme. This change aims to streamline compliance for smaller businesses while supporting overall revenue growth.
The structure of Ghana’s economic growth in the latter part of the 2010s, driven primarily by investment and exports, adversely affected VAT revenue growth due to its consumption-based nature. This dynamic explains the slower-than-anticipated VAT revenue increases in relation to overall economic growth and escalating tax rates.
The report’s analysis has already influenced tax policy developments in Ghana and has informed initiatives laid out in the MTRS. Future reforms and policy options derived from this analysis will also be appraised by the Government in pursuit of enhanced fiscal management.
The recent report from Ghana’s Ministry of Finance provides a comprehensive analysis of the VAT system, highlighting its progressive nature while pointing out inefficiencies in business compliance. With several recommendations aimed at improving tax registration and the strategic reassessment of exemptions, the government is poised to enhance revenue generation. The report also underscores the importance of aligning economic growth factors with VAT performance, paving the way for informed policymaking and future reforms in Ghana’s tax system.
Original Source: 3news.com
